Gold Market Thin in Holiday Trade

Posted by Adam King onDecember 28, 2012

Additional thin holiday trade on Friday morning has brought about only modest change in the price of gold. The U.S. dollar has firmed, a dynamic that will make the purchase of gold more expensive for holders of foreign currency. The gold market, in order to determine the current drivers, awaits new fundamental data.

U.S. gold futures for February delivery traded down $2.80 to $1,660.90 per troy ounce. The spot price fell $8.30 to $1,655.30 per troy ounce by mid-morning trade. Comex silver for March delivery also dropped modestly, down $0.12 to $30.12 per troy ounce.

Only a few days remain for lawmakers in Washington to resolve the U.S. fiscal cliff budget crisis. The deadline for reaching an agreement is January 3, as reported by Forbes. While President Obama is meeting with Democrat and Republic leaders today to discuss the matter and the House of Representatives will convene Sunday evening, many pundits are now forecasting that the deadline of January 3 will not be met, a shift from previous market belief that a last-minute deal would be made. Forbes has called the fiscal cliff a bearish drag on markets, particularly raw commodities, but now reports that markets, though disliking the uncertainty, are becoming numb to the situation.

While the fiscal cliff worries predominate in the U.S., reports released Friday indicate the European Union collective economy will contract in the fourth quarter of 2012, which will be the third straight quarter of negative growth. The situation in the European Union has continued to deteriorate with only nominal abatement during the much-publicized fiscal cliff difficulty in the U.S.

Global economic and geopolitical uncertainty has been a primary driver of precious metals since the financial crises of 2008. The drive to gold and silver as a safe-haven asset has continued since that time, though in varying incarnations. Holdings in gold-backed ETFs, for example, continue to reach all-time record highs, though since the reelection of President Obama American demand for physical gold and silver coin, as reported by the U.S. Mint, has skyrocketed. When the news of these crises gives way and markets have to cope with their aftermath it is entirely possible that regardless of current market prices a further drive to physical ownership will take precedent.

Short covering has firmed the U.S. dollar on Friday, further frustrating gold market bulls, as the gold market has been extremely sensitive to the strength of the dollar, particularly in December. The gold market’s rallies are pressured by the stronger dollar, though the market has also exhibited difficulty finding footing on days when the dollar index is lower.